So what do you want me to say? Let’s take Smith’s most important point:

“If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

Bingo. That’s true. I think that Smith’s preceding sentence; “It astounds me how little senior management gets a basic truth:” is false. I am confident that Goldman’s senior management knows this damn well, but they also know something else: clients are in this business for the same reason Goldman Sachs is: money.

That’s right – clients are in business to make money, Goldman is in the business to make money, and the entire business is one big cyclical balance of greed, service, profit, apology, give, take, rinse & repeat.

I have never worked at Goldman Sachs, but I have been a client of Goldman Sachs. Personally, my group stopped participating in secondary offerings that $GS underwrote because we always got adversely selected: we weren’t a top tier client of Goldman’s, so we got crappy allocations on the good deals, and got plenty of stock on the bad deals (which, in hindsight, we didn’t really want.) Guess what – that’s how the free market works: we recognized this fact, and stopped participating. Now, if Goldman wants me back as a client, they have to scratch my back a little bit – I’m no longer going to backstop their shitty deals with my demand. But there’s nothing wrong with that! It’s called “business.” We’re all free thinking sentient beings who know how it works. If you don’t like it, you go somewhere else – which brings up the next point: so much of Wall Street business has become or is becoming commoditized. This is actual a strike against Smith’s argument: either you provide a reasonable price for the client, or someone else will. In the last 15 years it’s become increasingly hard to rip clients’ eyes out, so to speak, precisely as a result of competition and commoditization of businesses. But it’s not totally commoditized: as I mentioned above, Goldman’s clients do business with Goldman for a key reason: because the clients also like to make money, and Goldman is good at what they do. That’s a fact we can’t lose sight of: GS is the business of profit, not charity – and Goldman’s clients are in the business of profit too – their desire to make money leads them into the Lion’s Den.

Anyway – I’m going to let you in on a little Wall Street secret: the goal is to maximize the inner yin-yang harmony of 1) money made from your client and 2) client satisfaction. This isn’t really a panacea – it’s how ALL business works. If you rip your client’s eyeballs out and rob them blind, you end up with no clients, and you make no more money: BAD. If you do everything for free and your clients are the happiest puppies on the planet, you still make no money: BAD. You have to find the balance – the happy state of homeostasis (confidential to Rick Santorum: don’t worry: homeostasis doesn’t mean “gay”) where you make money and your clients make money. Then, maybe you try to push it a little bit so that you make more money and your clients are still happy. If, eventually, you piss your client off, you have to make amends, or suffer the consequences of losing business. This is how markets work, and I don’t think it’s unique to Wall Street.

Guess what else – this doesn’t just apply to the relationship between the firm and its clients, it also applies to the relationship between the firm and its employees! Their goal is to pay you a bonus that’s just big enough to get you to not quit. If you threaten to quit, maybe they take you in the backroom and try to make you an offer you can’t refuse – or maybe they tell you to go screw: it all depends on how much they want to keep you, and how much they believe that you’ll really walk.

It seems in Greg Smith’s case, Goldman fell a little short on that “amount needed to make you stay” number, and Smith went out with a bang, publicly.

Let’s not lose sight of the fact that it’s always about making money. Everyone should understand that going in. Everyone should know that there is no noble charitable goal on Wall Street (nor in car sales, food & beverage business, real estate, etc). In my experience, parties on both sides of the trade are very well aware of this fact.

ps: I want to address another point quickly here: Greg Smith’s letter makes it sound like he was a higher-up at GS. In reality, he was a vice president – one of many. I mention this not to attempt to “smear” Mr. Smith, but merely to point out that there is definitely a huge difference between a senior guy who walks away, and a junior guy who walks away. We can speculate about motivation, but that would be, well, speculation. Let’s just say that if Smith was still a VP after being a 12 year Goldman lifer, he wasn’t exactly on track to be a future leader of the firm.

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